Previously, OMGI looked at global investment in terms of thirds — North America, pan-Europe and Asia, with Asia split further between Asia-Pacific and Japan, Wells told FSA on a recent trip to Hong Kong.
The firm has made a refinement by moving the fence. It is now able to invest up to 35% in Asia ex-Japan, though in practice Wells doubted allocation would reach that high.
“What we’ve been observing through historic returns is that the alpha that was generated in [Asia] was particularly robust. We wanted to be able to capture that, so we relaxed that constraint.”
After discussions with the firm’s investor base, the less constrained approach went live last month.
China concerns
Wells works on the global investment process with the portfolio managers and is heavily involved in communicating with clients. He said China has been dominating investor concerns, not Greece, which has been in the headlines for the last six years.
Clients are worried about potential ripple effects from market volatility in the mainland.
“There’s been a lot of concern about potential for volatility to increase in the market, where there is a lot of short-termism. Clients are asking whether this is a systemic risk.
“We’ve got a calm perspective on this. China is evolving and there will be pockets of turbulence. That’s not a reason to avoid investing in China.”
On the distribution side, clients have been concerned about China’s non-conventional policy decisions in regards to market intervention.
“But we’ve seen [intervention] in developed markets, too. With that in mind, investors might like a solution that could potentially offer the removal of beta from the portfolio. We’re having those types of conversations.”
He added that Greece is not necessarily resolved. “In the next six months, Greece could be back in a negotiation situation.”
However, the larger market-moving event over the long-term will be the actions of the US Federal Reserve.
“The US Fed is sitting with $4-$5trn on its balance sheet, up from $1trn in 2008 and there’s the whole question of how that’s going to play out.”
But rather than forecasting macro-events, OMGI builds portfolios based around the concept of market environment, he said. “We ask, when have we seen this market environment before?”
If the market undergoes a pronounced shift in investor appetite, “that can lead to a period when the portfolio flatlines or underperforms while it adjusts and recalibrates itself to a new market environment”. He then explains the situation to investors, he said.
Such an event occurred in February, when Europe launched its quantitative easing program and investor appetite shifted dramatically. “The portfolio reacted to that as it had to similar inflection points in the past. We explained to investors how the portfolio is reacting and shifting to reflect that new change. That is an example of how a high level of dialog with investors helps.”
Asia fund launch
During Q3, OMGI intends to launch an Irish-domiciled offshore global equity income fund, which Wells said will be available in Asia, subject to regulatory approval.
The fund will have monthly dividend distributions and the yield aims to achieve 30% above the benchmark index, the MSCI All Countries World Index.
“Income has been a strong theme in the last 3-4 years,” he added.
